United States District Court, D. Minnesota
B. Jorgenson and Pamela Abbate-Dattilo, FREDRIKSON &
BYRON, PA, for plaintiff.
C. Ahrens, HELLMUTH & JOHNSON PLLC, and Hillard M.
Sterling, TRAUB LIEBERMAN STRAUS & SHREWSBERRY LLP, for
defendant and third-party plaintiff.
Jeffrey M. Thompson, MEAGHER & GEER, PLLP, for
MEMORANDUM OPINION & ORDER
R. TUNHEIM CHIEF JUDGE.
dispute involves three contracts entered into by Plaintiff
Prairie River Home Care (“Prairie River”), a home
healthcare provider based in Minnesota; Defendant and
Third-Party Plaintiff Procura, LLC (“Procura”), a
Michigan software company; and Third-Party Defendant Salo
Solutions, Inc. (“Salo”), a consulting a training
company. Prairie River contracted to buy a license to
Procura's software, which never functioned properly on
Prairie River's systems. Separately, Salo contracted with
Prairie River to provide consulting and training services in
connection with the implementation of Procura's software.
Salo and Procura also had a contract stating terms for mutual
Second Amended Complaint, Prairie River brought five claims
against Procura: (I) Breach of Contract; (II) Breach of
Express Warranty; (III) Breach of the Implied Warranty of
Merchantability; (IV) Fraudulent Inducement; and (V)
Violations of the Illinois Consumer Fraud Act. Prairie River
seeks monetary damages, including consequential damages.
Procura then filed a Third-Party Complaint against Salo,
alleging two Counts of Breach of Contract and seeking
indemnification for Prairie River's claims against it.
motions are now before the Court: (1) Procura's partial
motion to dismiss Prairie River's claims for
consequential damages and Counts III and V of the Second
Amended Complaint; and (2) Salo's motion to dismiss the
Third-Party Complaint. Because Prairie River has alleged
facts sufficient to show that the contractual clauses
limiting remedies and disclaiming consequential damages are
invalid, the Court will deny Procura's motion to dismiss
Prairie River's claims for consequential damages. Because
the contract between Prairie River and Procura contains a
valid warranty disclaimer, the Court will grant Procura's
motion to dismiss Count III. Because Procura's alleged
fraud did not occur primarily and substantially in Illinois,
the Court will grant Procura's motion to dismiss Count V.
Finally, because Procura has failed to state a claim against
Salo, the Court will grant Salo's motion to dismiss in
The Prairie River/Procura Agreement
River is a family-owned, Minnesota-based company that
provides in-home care and medical services for the elderly
and people with disabilities. (2d Am. Compl.
(“SAC”) ¶¶ 5-7, Aug. 31, 2018, Docket
No. 65.) Its corporate office is in Buffalo, Minnesota, and
it has eight branch offices throughout the state.
(Id. ¶ 7.) As a licensed, Medicare-certified
home health agency, Prairie River is highly regulated and has
specific billing and documentation needs. (Id.
¶¶ 5, 15.) It relies on commercial software
designed for the care industry to meet those needs and to
assist with other aspects of business management and
operations. (See Id. ¶¶ 11-13, 15-16.)
River was referred to Procura by Salo. (3d Party Compl.
(“TPC”) ¶ 18, Sept. 17, 2018, Docket No.
69.) Prairie River contacted Procura in May of 2015 after
seeing Procura advertise itself as offering “a complete
(and highly configurable) software package” for care
companies. (SAC ¶¶ 11-12.) At that time, Prairie
River was using a software system called Riversoft.
(Id. ¶ 12.) Although Riversoft was meeting
Prairie River's needs, Prairie River was looking for
enhanced documentation capabilities. (Id. ¶
13.) To ensure that Procura was capable of meeting its needs,
Prairie River described to Procura its billing and
documentation needs, the large size of its database, and its
need for a new software system to be “live” by
February 2016. (Id. ¶¶ 15, 18, 20.)
Procura assured Prairie River that its software (“the
Software”) would meet Prairie River's needs, could
be implemented by February 2016, and would be easy to
customize. (Id. ¶¶ 15-18, 21.) Procura
also told Prairie River that “tons” of former
Riversoft customers had transitioned smoothly to the
Software. (Id. ¶ 22.)
June and October, 2015, Procura conducted several software
demonstrations for Prairie River. (Id. ¶ 14.)
Prairie River was unable to test the Software outside of
those demonstrations. (Id.) On September 18, Procura
representatives came to Prairie River's corporate office
in Buffalo, Minnesota, to negotiate a sale. (Id.
¶ 25.) During that visit, Procura told Prairie River
that it wanted to reach an agreement by September 30 so that
it could include the sale in its third quarter reports.
(Id.) Prairie River requested more time to consider
the terms, but on September 29, Procura's President and
CEO, Chris Junker, came to Minnesota to finalize the sale.
(Id. ¶¶ 25-26.) Prairie River alleges that
Junker pressured Prairie River representatives to commit to a
sale by the next day. (Id. ¶ 26.) The parties
ultimately entered into an agreement (the
“Agreement”) on September 30. (Id.
Agreement gave Prairie River access to the Software and
related support services in exchange for $521, 819.00.
(Id. ¶¶ 29-31.) Procura agreed to provide
both hardware and software support services, including in the
case of a “Software Problem.” (Id.
¶ 31.) The Agreement defines “Software
Problem” as “an inability of the Software to
perform, in all material respects, in accordance with its
related Documentation.” (Id. ¶ 32.)
“Documentation” refers to Procura's
“user guides, operating manuals, educational materials,
product descriptions and specifications, technical manuals,
supporting materials, and other information relating to the
Software.” (Answer to SAC at 41, Ex. A
(“Agreement”) § 1, Sept. 21, 2018, Docket
Agreement includes a “Warranty of Performance, ”
warranting that the Software would “be capable of
functioning substantially in accordance with its related
[D]ocumentation” and “in a manner consistent with
industry standards.” (Id. § 7.2(ii).) It
also required the Software to be substantially functional
within 90 days of the Agreement's execution.
(Id. § 7.2(iii).) Finally, it explicitly limits
remedies to a refund and disclaims consequential damages and
all implied warranties:
8.1 Basic Disclaimer.
EXCEPT AS EXPRESSLY PROVIDED IN SECTION 7, THE SOFTWARE . . .
AND ALL MAINTENANCE SUPPORT AND PROFESSIONAL SERVICES ARE
PROVIDED ON AN “AS IS” BASIS WITH NO OTHER
WARRANTIES OF ANY KIND, AND, UNLESS OTHERWISE PRECLUDED BY
LAW, LICENSOR DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9.1 Disclaimer of Consequential Damages.
EXCEPT WITH RESPECT TO A PARTY'S INDEMNIFICATION
OBLIGATOINS AS SET FORTH IN THIS AGREEMENT, NEITHER PARTY . .
. SHALL BE LIABLE UNDER THIS TO THE OTHER PARTY OR ANY THIRD
PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR
CONSEQUENTIAL LOSS OR DAMAGES OR ANY OTHER SIMILAR DAMAGES
UNDER ANY THEORY OF LIABILITY.
9.2 Limitation of Liability.
EXCEPT WITH RESPECT TO LICENSOR'S INDEMNIFICATION
OBLIGATION PURSUANT TO SECTION 11.1, BELOW, LICENSOR'S .
. . TOTAL AGGREGATE LIABILITY TO CUSTOMER FOR ANY LOSS, COST,
CLAIM OR DAMAGES OF ANY KIND ARISING OUT OF OR RELATED TO
THIS AGREEMENT SHALL NOT EXCEED IN THE AGGREGATE THE AMOUNT
OF FEES ACTUALLY PAID TO THE LICENSOR IN THE PREVIOUS TWELVE
(12) MONTH PERIOD PRIOR TO THE INITIATION OF THE CLAIM BY
(Id. §§ 8.1, 9.1, 9.2.). The Agreement is
governed by the laws of Illinois. (Id. ¶ 1.)
The Salo/Procura Agreement
provides software implementation services for healthcare
customers who are using Procura's software on their
systems. (TPC ¶ 7.) In September 2014, Salo and Procura
entered into a formal agreement (“Provider
Agreement”) which established Salo as a preferred, but
non-exclusive, provider of services related to Procura's
software. (Id. ¶¶ 8-9, 12 & Ex. A
(“Provider Agreement”), Sept. 17, 2019, Docket
No. 69-1.) The Provider Agreement contained the following
terms and warranties:
(1) “[Salo] is capable of providing Services that may
be required by Procura's clients and represents that its
employee personnel and contractors are sufficiently trained
and knowledgeable to provide the Services;” (2)
“All Services provided by [Salo] shall be pursuant to a
separate agreement between [Salo] and the clients . . . who
elect to obtain such Services;” and (3) “Each
[a]greement entered into between [Salo] and a Procura client
shall include a provision indicating that the client shall
look solely to [Salo] for the provision of the Services and
the results achieved therefrom.”
(Provider Agreement §§ 2-3.)
Provider Agreement contemplated that Salo and Procura would
benefit from mutual customer referrals. (See Id.
§§ 4-5.) As such, it contains terms for royalty
payments from each party to the other upon successful
referrals. For each “[a]greement entered into between
[Salo] and a client referred to by Procura, ” the
Provider Agreement requires Salo to pay a royalty to Procura.
(Id. § 4.) Likewise, “for fees for
software and services billed and collected by Procura for new
clients referred to Procura by [Salo], ” Procura is
required to pay a royalty to Salo. (Id. § 5.)
Where a prospective client was “previously identified
and contacted by Procura prior to [Salo's] submission of
the customer name to Procura, ” Procura is not required
to pay Salo royalty payments. (Id.) The Provider
Agreement does not define “refer” or
Provider Agreement also contains the following
[Salo] agrees to protect, defend, indemnify and hold Procura
harmless from any and all claims, actions, suits, costs,
losses, expenses, damages or liability whatsoever, whether
direct or indirect . . . which Procura . . . may incur . . .
as a result of, caused by or arising out of or in connection
with, or contributed to, in whole or in part, directly or
indirectly by: (i) [Salo's] failure to comply with the
terms of this Agreement and/or violation of any federal,
state or local law…; (ii) any illegal activities
alleged to have been committed by, or involving
[Salo]…; and/or (iv) the performance of any Services
separately provided by [Salo], its agents, or employees.
(Id. § 9.) There is a similar clause
indemnifying Salo in the case of Procura's breach,
illegal activities, or separate performance of services.
(Id.) The contract is governed by the laws of Ohio.
(Id. § 12.)
The Salo/Prairie River Agreement
River alleges that, after it entered into the Agreement with
Procura, Procura informed Prairie River that Salo would
conduct the implementation because Procura did not have the
bandwidth to do so itself. (SAC ¶¶ 34-35.) The
Agreement itself stated that “Professional Services
shall be provided by Salo Solutions and they shall provide
[Prairie River] with their own contract terms and conditions
and [Prairie River] agrees to look solely to Salo Solutions
with respect to the performance of such services and results
obtained therefrom.” (Agreement at 14.) The Agreement
identifies the “Professional Services” that
Prairie River would receive from Salo as separate from the
maintenance support that Procura agreed to provide to Prairie
River. (See Agreement § 1.)
River and Salo entered into their own, separate agreement for
information technology consulting services (the
“Salo/Prairie River Agreement” or
“SPRA”) on October 21, 2015. (TPC ¶ 19 &
Ex. B (“SPRA”), Docket No. 69-2.) The SPRA does
not define the scope of Salo's services to Prairie River,
but instead contains a provision stating that for each
engagement, “a document defining the scope of work
(‘Work Order') shall be prepared.” (SPRA
same day they executed the SPRA, Salo and Prairie River
executed a Work Order. (TPC ¶ 23 & Ex. C
(“Work Order), Docket No. 69-3.) The Work Order
described Salo's “technical and operational
consulting” services and identified five objectives for
its work with Prairie River: (1) [f]ocus . . . on a
“knowledge transfer” to “assist in shaping
the software to meet [Prairie River's] needs;” (2)
build a Procura system “based on the unique business
operations and specifications of the Prairie River
operation;” (3) “Train the Trainer, ” i.e.
train Prairie River personnel to train other employees; (4)
“provide a prioritized risk mitigation summary;”
and (5) support a “‘Procura lead' in training
[Prairie River] offices during GO LIVE, and assist in
transitioning [Prairie River] operations to Procura Support
after GO LIVE.” (Work Order at 3.)
Software Failures at Prairie River
Procura had delivered a database to Prairie River by November
2015- within the 90-day window established by the
Agreement-the Software wasn't functional at any Prairie
River office until June 2016. (SAC ¶¶ 38, 40.)
Prairie River alleges that six major categories of software
failures occurred after the Software was implemented.
(See Id. ¶¶ 44-89.)
Point of Care Failures
August and September, 2016, the Software went live at six
Prairie River branches. (Id. ¶ 48.) Employees
at those offices began to report missing documents due to
failures in the Point of Care (“POC”)
synchronization process. (Id. ¶ 45, 48.) POC
refers to a function that syncs clinical data to a central
server from local PCs. (Id.) Although Prairie River
had its own backup system, it could not retrieve the missing
documents from that system. (Id. ¶ 48.) Prairie
River initially believed the losses were caused by user
error, but later realized that they were ...